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Apple Inc. Chief Executive Steve Jobs and several other current and former Apple executives and directors have agreed to a tentative settlement in a shareholder lawsuit that alleged improper stock-option practices at the company.
Under the settlement, insurance companies that provide liability coverage for company officers and directors will pay $14 million to settle claims about their alleged participation in a system to pick favorable option grant dates at Apple, according to papers filed in federal court in San Jose, Calif., Sept. 4. As part of the settlement, Apple, of Cupertino, Calif., also agreed to make several changes to its corporate-governance practices and other company processes.
Because the lawsuit was a derivative action, Apple itself will receive the $14 million. In such a lawsuit, a shareholder typically sues executives or board members on behalf of a company. The company in most cases receives any settlement money, with a portion of that usually being paid to plaintiffs lawyers.
As part of the settlement, Apple agreed to pay a total of $8
The defendants, in a settlement agreement filed with the court, deny violating the law or any commitment to Apple. An Apple spokesman declined to comment. An attorney for the plaintiffs didn’t return phone calls seeking comment.
The settlement, if approved, would bring to an end an array of federal and state lawsuits filed in the wake of Apple’s disclosure in 2006 that thousands of option grants between 1997 and 2002, including those to Mr. Jobs, were improperly dated.
An option gives its holder the right to buy a stock at a fixed price, usually for as many as 10 years after the date of the grant. By backdating the exercise price to a time when the stock was lower, the employee gets an instant boost to the possible profits from the award.
As a result of an Apple investigation into its own options-granting practices, the company restated its financial results between 1998 and 2006 to recognize a new after-tax, noncash expense of $84 million.
The Securities and Exchange Commission filed charges against two former Apple executives, former Chief Financial Officer Fred Anderson and former general counsel Nancy Heinen, alleging they were involved in options backdating. Mr. Anderson settled the case with the SEC in April 2007 by paying $3.5 million. Ms. Heinen settled in August 2008 by paying $2.2 million.
